CBDT clarifies tax clearance certificate not applicable to all Indians
In the wake of media reports that the Union Budget 2024 had made it mandatory for all Indians to obtain a tax clearance certificate from the income-tax authorities prior to departing India, the Indian Central Board of Direct Taxes (CBDT) has issued a clarification.
The CBDT clarification states that Section 230 of the Income Tax Act, 1961, does not mandate every individual domiciled in India to secure a tax clearance certificate before departure. The requirement applies only under specific circumstances.
According to the CBDT’s Instruction No. 1/2004, dated February 5, 2004, a tax clearance certificate is necessary only for individuals involved in serious financial irregularities or those with significant direct tax arrears exceeding Rs10 lakh (Rs1 million), provided these arrears have not been stayed by any legal authority.
The CBDT clarification also stressed that the issuance of a tax clearance certificate is not an arbitrary process provided by any tax official. The clearance certificate requires documented reasons and prior approval from the Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax.
The clearance certificate will confirm that the individual has no outstanding liabilities under various tax laws, including the Income-tax Act, Wealth-tax Act, Gift-tax Act, Expenditure-tax Act, and the Black Money Act, 2015, proposed in Finance (No. 2) Bill, 2024. This proposal aims to ensure that liabilities under the Black Money Act are also cleared before issuing the tax clearance certificate.
The 2024 Budget has also introduced significant changes to penalties under the Black Money Act. Starting 1 October, 2024, the Rs1 million (Rs10 lakh) penalty for not reporting foreign assets (excluding real estate) with a total value of less than Rs2 million (Rs20 lakh) will be removed. This amendment aims to simplify compliance for individuals with modest foreign holdings.
Residents, who are ordinarily residents of India, must disclose all foreign assets, including investments like shares and securities, as well as any income derived from these assets when filing their Income Tax Return (ITR). Failure to report foreign income and assets or submit the related ITR could result in a penalty of Rs1 million (Rs10 lakh) under sections 42 or 43 of the Black Money Act.
However, these sections do not apply to bank accounts with a total balance not exceeding Rs500,000 (Rs5 lakh) at any time during the previous year. This aims to provide relief for individuals with minimal foreign holdings.
